Greetings, and welcome to the Bolsa Mexicana de Valores, S.A.B. de C.V. third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please Press Star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ramón Güémez, Chief Financial Officer. Thank you. You may begin.
Thank you. Good morning, and welcome to Bolsa Mexicana de Valores Third Quarter 2023 Earnings Conference Call. Before proceeding, I'd like to provide a brief safe harbor statement. This presentation contains forward-looking statements and information related to Bolsa that are based on the analysis and expectations of its management, as well as assumptions made and information currently available at Bolsa. Such statements reflect the current views of Bolsa related to future events and are subject to risks, uncertainties and assumptions. Many factors could cause the current results, performance or achievements of Bolsa to be somewhat different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in the general economic, political, governmental, and business conditions, both in a global scale and in the individual countries in which Bolsa does business.
Such as changes in monetary policies, in inflation rates, in prices, in business strategy, and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary considerably from those described herein as anticipated, believed, estimated, expected, or targeted. Bolsa does not intend and does not assume any obligation to update these forward-looking statements. I would also like to remind participants that today's call is being recorded, and a replay of this call will be available online on October nineteenth, at Bolsa's corporate website, www.bmd.com.mx. During this call, all figures are in Mexican pesos and compared to the third quarter of 2022, unless stated otherwise. This call is intended for the financial community only, and the floor will be open at the end to address any questions you may have.
Joining us for today's call are José-Oriol Bosch, CEO; Claudio Vivian, CIO; Hugo Contreras, Chief Compliance and Regulations Officer; José Manuel Allende, Chief Capital Formation, Markets, and Information Services Officer; Roberto González, Chief Post Trade Officer; Alfredo Guillén, Managing Director of Equity Markets; José Miguel de Dios, Managing Director of Derivatives Markets; Rosa Crespo, Managing Director of Human Resources; Luis René Ramón, Director of Investor Relations; and myself, Ramón Güémez. I would now like to turn the call over to our CEO, Oriol Bosch.
Thank you, Ramón, and good morning, everyone, and thank you for joining us to the Mexican Stock Exchange third quarter 2023 earnings conference call. I will go over a couple of points that are important to consider when comparing year-to-date 2023 versus 2022. Then, I will walk you through the different divisions results, and finally, open up to questions on the conference call line. First, FX had a double impact in the quarter and nine-month update. About 30% of fee and fees revenue and 25% of fees expenses are linked to the U.S. dollar. On one hand, the strength for the Mexican peso had a MXN 110 million negative impact in revenue in the first nine months of 2023, mainly in information services and the central securities depository Indeval.
On the other hand, the expenses were MXN 48 million lower than expected in the nine months up to September, mainly in technology and sub-cost fees. The net negative impact on the EBITDA was MXN 62 million. Second, in 2022, the total non-recurring revenue in the balance CIFICA amounted to MXN 134 million. With that in mind, let's review the quarterly financial highlights in slide number three, please, to talk about the key financial highlights. The revenue was MXN 933 million, down 5% because of lower equity trading, fewer cross-border transactions, and, as mentioned before, an unfavorable exchange rate. Expenses were MXN 475 million, up 3%, mainly due to higher personal costs, technology upgrades, and regulatory projects, as well as fee and fees building renovations. EBITDA was registered at MXN 512 million, down 10%.
Net income was reported at MXN 330 million, 18% below third quarter 2022. On the next slide, we will go over the results for the first nine months of the year. On slide number four, you can see that the revenue was MXN 2.9 billion, down 7%, mainly due to lower equity trading, fewer cross-border transactions, non-recurring revenue reported in 2022, as well as effects.... Expenses were MXN 1.4 billion, up 5% explained by personal and technology costs. EBITDA was registered at MXN 1.6 billion, down 15%, but after adjusting for non-recurring revenue, the EBITDA decreased 8% with an EBITDA margin of 57% versus 60% last year. Net income amounted to MXN 1.1 billion. It was a resilient result once you adjust for non-recurrent revenue.
Please turn to the next slide to go over the different business lines. In slide number five, you can see that capital formation or the listing of equity and debt, as well as its annual maintenance, contributed this quarter with 13% of BMV's group revenue. Transactional businesses, which consist of equity trading and clearing, derivatives trading and clearing, and OTC trading, generated 38% of revenue. Information services, made up of data, analytics, indices, valuation, and financial risk management services, had a 19% weight. The Central Securities Depository in Indeval, which is responsible for the custody, settlement, and global market services, mainly cross-border transactions, participated with 27% of revenue. Once again, our diversified business model played a strong role. Lower equity trading and fewer cross-border transactions in Indeval had a negative impact, while information services and capital formation remained strong.
The nature of our business includes highly recurring revenue and a strong customer retention. About 50% of BMV's group revenues are subscription-based, and the other half are transactional. Please turn to slide 6 to go over equity trading and clearing. Revenue in cash equity trading and clearing was down 7%. In the third quarter, the average daily traded value, the ADTV, at BMV was registered at MXN 13.6 billion, with BMV's market share stable in the mid-80s. The local market was up 21%. However, the global market decreased 45% in large part because of FX. The total Mexican market, ADTV, was MXN 16.4 billion. That's an 11% drop for the quarter and minus 12% for the months up to September.
Although the figure is not good, it is consistent with the trading activity in other parts of the world, given the current monetary policies and macro financial conditions. CCP results were in line with last year's figure, even though ADTV was down. This is explained by a lower number of cross trades in the third quarter of 2023. Let's go on the next slide to review derivatives. Revenue in derivatives trading and clearing was down 9% in the quarter due to lower trading of dollar futures. The total number of open derivatives contracts of dollar futures or open interest dropped 44% compared to the third quarter of 2022 because clients closed catching positions. On the other hand, the total value of interest rate swaps or notional value increased 106% because of monetary policy options.
In Asigna, the average margin deposits were MXN 32.9 billion for the quarter and MXN 34.8 billion for the accumulated months of 2023. MexDer charges a different trading fee based on the type of contract. Therefore, changes in contract operations do not necessarily reflect revenue movements. We continue attracting new clients to the Mexican derivatives market, including brokers, market makers, and prop trading firms, as well as vendors, mainly in the U.S. In slide number 8, on the OTC trading, in SIF ICAP, the OTC trading and value-added services made good progress, with the revenue reaching MXN 181 million, up 6%. SIF ICAP Mexico increased 11%, explained by higher trading of interest rate swaps and new clients in MéxiCO2, a subsidiary firm specialized in promoting environmental markets and carbon credits.
SIF ICAP Chile was up 4% due to higher trading in FX and interest rate swaps. On slide 9, we have the figures for our capital formation. Listings performed strong in both short-term and long-term debt markets, with revenue increasing 24%. Debt has been the largest driver in capital formation's top line. In short-term debt, 327 issuances were placed for a total amount of MXN 70 billion, while in long-term, 24 issuances were registered for a total amount of MXN 54 billion. I would also like to mention that so far in 2023, five new companies have arrived to the CNBV's debt market: Banca Mifel, Banco Internacional, Inversiones CMCP, and Fira Trust. This reflects the trust that firms and investors have in Grupo BMV.
Furthermore, it is worth noticing that 47% of the total long-term debt issued in CMN during the first nine months of the year was sustainable through thematic bonds, green, social, and sustainable, and sustainability-linked bonds. We'll continue promoting this market to our digital platforms and education programs. In the equity market, we had a follow-on for MXN 4.9 billion from Traxión. Regarding maintenance, revenue was down 4%. Since the amount issued, it is not directly linked to the revenue due to cuts in our fees. The debt market is recovering, and we have enabled a larger amount placed. However, more bonds have been reached maturity versus new issuances. At the end of September 2023, there are 480 long-term debt issuances compared to 521 in the first nine months in 2022.
Moving on to the Central Securities Depository on slide 10. Indeval's revenue was down MXN 33 million in the third quarter, MXN 23 million due to effects, mainly in the global market services and global custody, whose fees are in dollars, and MXN 10 million because of a lower number of cross-border transactions and trade settled in the global market. Assets under custody in the accumulated months up to September increased 10% in the local market to MXN 32.2 trillion and decreased 7% in the global market to MXN 1.5 trillion. As announced previously, we are currently working to accelerate the settlement cycle to T+1 in May 2024, in line with the USA and Canada, to better serve market participants by offering a more efficient transaction and mitigation risk.
Finally, on slide 11, Information Services, revenue reached MXN 178 million in the third quarter of 2023, a similar figure to that of last year, despite the appreciation of the Mexican peso against the dollar. The strength of the Mexican peso represented a negative impact of MXN 14 million in the quarter. Under constant effects, we expect this business line to continue growing annually at a double-digit rate, given the demand for our data internationally. All in all, a good set of numbers in capital formation and information services. On the other hand, equity trading and Indeval are facing a challenging period given the current interest rates, exchange rate, and value trading.
As mentioned at the beginning of the call, the strength of the Mexican peso had a negative impact of MXN 110 million in revenue in the first nine months of 2023. Now, let's look at our operating expenses in slide number 12. Operating expenses in the third quarter and nine months of 2023 were up 3% and 5% respectively. I will go over the main items on a year-to-date basis. Personnel expenses up 8% due to annual salary increments and higher recurring revenue in CIFITEC. Technology increased 14% because of upgrades to maintain evergreen platform by enhancing features and security, as well as the segregation of post-trade infrastructure. Rent and maintenance up 18% due to higher maintenance costs and building renovations.
Sub-custody expenses were down 43% since Indeval was authorized as a qualified intermediary by the U.S. Internal Revenue Service, and this in turn transfers into lower costs associated with the administration of tax forms and W-8 forms. Promotional activities or marketing was up 17% because of greater number of customer and corporate events. It is important to note that foreign exchange fluctuations had a positive impact in expenses during the first three quarters that amounted to MXN 48 million, lower mostly in technology and sub-custody. We continue executing with cost discipline towards increased operational leverage while investing in technology to strengthen the resilience of our platforms. Please turn to slide number 13 for our conclusions. In summary, notably, the first nine months of 2022 makes for a tough period to compare with because of extraordinary revenue concepts and foreign exchange fluctuations.
Additionally, a lower average traded value in the global market and fewer cross-border transactions are negatively impacting our financial results.... Nonetheless, BMV Group has a diversified range of revenues, which is, has strengthened our business model. We maintain our leadership position in Mexico for both capital formation and equity trading. In derivatives, we continue looking for options to increase liquidity, as well as other growth projects that require regulatory approval. Furthermore, we are committed to strengthening our data and analytics, offering and increasing our footprint worldwide. Regarding BMV's technology evolution, we have made good progress in strengthening our platform with the aim of having an evergreen and seamless technology across all divisions. Additionally, we have finished the design study and currently reviewing viable options to enhance our post-trade product offering and simplify our operation.
However, the segregation of post-trade infrastructure is reporting delays in the configuration of the new hardware infrastructure. However, corrective actions are being put in place. I thank you for your time, and together with my colleagues, we will gladly answer any questions you may have. Thank you very much.
Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please Press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may Press Star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ernesto Gabilondo with Bank of America. Please proceed with your question.
Thank you. Hi, good morning, Oriol, Ramón, and Luis René. Thanks for the opportunity. I have three questions from my side. The first one is related to competition. We have seen that BIVA has been approaching different brokers to offer additional discounts on the trading. On the other hand, you have mentioned in the past that you were discussing with the authorities implementation of the best execution, arguing that there have been no benefit for the clients and that volumes have been some kind of discretionary. So any comments and an update on this will be much appreciated. My second question is on trading volumes. We continue to see they have been weak on a GOG basis, so wanted to hear what will be Bolsa's strategy to revert this trend?
What could be some potential tailwinds? And also in terms of trading, we have seen some follow-ons from Prologis, Delta, Traxión this year, and now Fibra Uno has announced its the intention to do a follow-on. So how are you seeing the pipeline for new potential follow-ons or IPOs? And then my last question is an update on the changes to the Mexican Securities Law. Can you please help us to hear which is the last update? And if you think it could be approved by year-end, so far, what do you think have been the pushbacks, and what do you plan to solve them? Thank you.
Thank you, Ernesto, for all your questions. We'll try to answer all of them. On the first one, regarding competition, I cannot speak for Biva, but in my opinion, a failed project is not going to become a successful project by changing the regulation or offering price discounts. I think that a successful project needs to deliver, so it's a different story. But I think that I would like to ask Alfredo Guillén to expand a bit on that. So Alfredo?
Yes, good morning. Yes, as Oriol was saying, we believe that, sorry, the tariffs at this point are not the reason for low volumes, as you might already know. So we are confident that once interest rates reach its peak next year, and the appreciation of the peso reverts at the more reasonable levels, we'll start to see volumes coming back, mainly in the arbitrage trading held by algorithmic participants. So at this point, tariffs are not in the equation. It's more the peso levels that the rate levels. So it's and it's not only happening in the Mexican market, it's a global phenomenon in the cash markets worldwide.
And by the way, all the, Ernesto, the prices from the Bolsa and from other companies of the Grupo Bolsa are regulated. So if any of the stock exchanges wants to offer a discount or change any price, it has to be approved by the financial- by the regulators, by the CNBV.
Okay. So the second one, Ernesto, regarding the pipeline, as you pointed, the debt market in the first nine months have been good.
... increasing placements over 70% over last year. And for the rest of the year, we still have some companies willing to come to the market. Those placement will be in the range of MXN 40 billion-MXN 50 billion, from 10-12 different companies, different sectors. So with that, we can see the fourth quarter something similar to what we saw in the third quarter, we think. And regarding, as you pointed, we may have some listings on the FIBRA instrument, as well as maybe some follow-ons. We also have some third piece requests on the list that may go out to market for the fourth Q.
Mm-hmm.
And, of course, regarding the equity, which was the main point of the question, nothing is now on the radar. We still doing promotion and contact efforts with potential companies, but I would say nothing serious for coming in the market right now. I think the driver will be evaluations, and now those are a little bit far from the highs that we have some months ago.
And regarding the strategy or what we are doing, I would say that we are focused on and focusing on what it is in our hands. So we continue trying to attract and maintain the best talent, investing in technology offering, and working in new products and services.
Mm-hmm.
- to our clients, working together with our clients, with the Casas de Bolsa, working also with the regulators, if there is any change that we have to make or any kind of improvement. But there are some aspects that are not in our hands, that depends on... And I would say that this year, as mentioned previously in this call, we are having an important competitor that is the interest-rate market. Interest rates in Mexico, overnight rates at 11.25%, this is a big competitor for the equity market. The lower volatility and the appreciation of the Mexican peso also had an impact in the daily traded volume.
There are some things that are not in our hands, but we continue to work and trying to grow and develop the market. One of the things that we have been working on with the regulators, with the Casas de Bolsa, with the Casa de Bolsa, Casas de Bolsa Association, is the expected change in the Ley del Mercado de Valores, in order to attract new participants, new companies, and different sizes and sectors that are not represented in the stock market today, by this new ley de this new change in the Ley del Mercado de Valores in the...
That is going to. It is in the hands of the lower house, and it should be approved. We hope that it should be approved soon.
Thank you very much. On this last one, you expect that this law could be approved by year-end? It has to be passed by Congress, right?
Yes, that's correct, Ernesto.
Okay, David, thank you very much.
And once it is approved, then it will be required, a secondary law, and there is a deadline of one year after it was approved by the Congress.
Okay, understood. Thank you very much.
The CNBV, the regulators, should work on this secondary regulation. Okay. Thank you, Ernest.
Thank you. Our next question comes from the line of Juan Ponce with Banesco BBI. Please proceed with your question.
Hi, good morning, everybody, and thank you for taking my question. Most of it, most of them have been answered already, but it's just a follow-up on the Indeval revenues business. What are you expecting over the next coming quarters in terms of improving the weakness we have seen recently? Thank you so much.
Juan, we'll let Roberto González, our Indeval CEO, take that.
Hola, Juan, good morning. I think that, briefly, Oriol and, and Alfredo explained, but this is related to lower volumes. One of the things, and we have talked a lot with the brokers, one of the issues that is related to the FX, in the past, we used to have a lot of FX trading, our clients buying ETFs that have PBIs within the composition. And normally, when the dollar went down, they buy, and then it went up, they sell, and there was a lot of trading activity on that. So we have seen a lot of clients that bought at 20, 19, 18, 17, and basically they're keeping the positions, they're holding the assets, so we saw a lot of-
... lower activity, and we also have seen lower volatility in the FX that is also related to what we normally see in the SIF market. So we've been working with some of them. We're looking at different alternatives also to approach the retail market and to see how we can help the arbitrage desks to be more efficient in the processes. But that's basically the explanation why we've seen such an impact. In addition to that Indeval fees, about 55% of Indeval fees are in U.S. dollars. So the impact compared to last year is relevant in each month that we've seen at a much lower FX rate. So that's why you see the numbers in pesos lower than last year.
Got it. Thank you so much for the color.
Thank you. Our next question comes from the line of Jorge Henderson with Santander Mexico. Please proceed with your question.
Hi. Thank you. Good morning, everyone, and thanks for the Q&A space, as always. I have two questions. First, I wanted to ask you about the capital formation results. You posted strong data on debt listings, right? But we wanted to understand why maintenance fees fell 4% sequentially and year over year, despite the recovery on listings. When should we begin to see these new listings translating into higher maintenance fees? Any color here would be much appreciated. I also wanted to ask you about this quarter's tax rate, which was 33%, about the statutory tax rate. We noticed it was higher than last year. Is there any structural reason behind this? Perhaps a one-off explaining this. And that would be all. Thank you for the space.
Thank you, Jorge. Maintenance fees fall year-over-year because the key driver there is the total number of outstanding issuances. And so you have more payments than new listings, then the total number of outstanding bonds decreases, and that's what we eventually charge on. When could we expect to see a change in this trend? It's difficult to say. It really depends on the difference between new issuances and payments and prepayments. From what we have this year, it seems to be flattish, but these are numbers that we report on our quarterly, on our press release at the very end. If you like, we can go over those later.
Yes. Yeah, the key number to follow in the maintenance data is the number of securities, as Ramón has pointed. And those have been going down from, let's say, 2018, we were at 630, and now we should be something close to 480 or 90%, or 90. So, we have to follow the number of securities-
Mm-hmm.
And the outstanding amount, which it has increased a little bit, but the problem that... Or not problem, the issue that we're facing there is the average amount on each placement has been increased. So that's the reason you see good activity on the placement amount, but with fewer number of placements.
Because of the caps, because we have a cap on this, so it's better for us to have 2, let's say, MXN 50 billion listings than one for MXN 100 billion.
Oh, thank you. That's, that's clear.
On the tax rate, it has to do with inflation and the way inflation is impacting us. Well, the tax effect on the inflation income and expense.
Okay. So, so there's a direct connection between inflation and the tax rate. Okay, thank-
Mm-hmm.
Thank you. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Edson Murguia with Summa Cap. Please proceed with your question.
Hi. Thank you so much for taking my questions. I have a couple of them. The first one is regarding to MéxiCO2. You mentioned in the press release that at some point, it contributed to part of the trading revenue or the activity in SIF ICAP. So I was wondering if you could give us a little bit of color about specifically about MéxiCO2. I know you mentioned that it's sustainability platform, so on, so on, so on. But what was the impact on the revenue? And the second question is regarding on the rebate....
Probably Mac can give us a little bit more thought about, because Matt mentioned in the past, annual encuentro, that at the end of 2023, we have some type of, I'm gonna be careful about my remarks, but some type of listing instrument product that will be limitless swap TA. Could you give us a little bit color about this? Because 2023 is almost over. Thank you so much.
Thank you, Edson. We will, we'll let Mac take the second question first.
Yeah. Hello, hello, Edson. Well, we are in the process to list this new product, this TIIE Fondeo swaps. We are in a few weeks, we are going to send to the authorities the new specs, you know, to give the authorization, no? So we are working with the clearing members and with Asigna to be ready with the systems, and the idea is to have this product on production in January.
Okay.
As for the first question about MéxiCO2, and this is a subsidiary company of SIF ICAP that promotes environmental markets and CO2 credits. In Mexico, there are a couple of states that impose a tax on CO2 emissions. However, last year, one state started authorizing companies to offset their CO2 emissions through carbon credits, which was great news since MéxiCO2 offers this type of products, carbon credits, offsets, as well as educational services. So we have seen this in one state. There is another state that is considering this, so we could see a trend going in that direction. Now, having said that, this is a small division, but we believe that it's in the right business. We believe it's in the right trend.
We have been offering new services related to ESG, that go from new products for capital formation, new indices, and this will be the third one, MéxiCO2 a carbon credit platform. So as for revenues, this contributed only with MXN 3 million, but, I'm sure we will see more from this in the coming years.
Okay. Just, last but not least, what about TIIE Fondeo futures operation? Because it seems like no one, and probably it's the elephant in the room, no one is operating regarding on, on, on the highlights and operation levels through September. Could you give us a little bit thoughts? Because again, during the Encuentro meet, Gerardo mentioned that we should, as market participant, use the the future TIIE Fondeo futures, but no one is operating. So could you give us a little bit color, thoughts, or even what about execution as a market participant? Thank you.
Thank you, Edson. Yes, we have the TIIE Fondeo futures listed, and, as you mentioned, we don't have any trades or we have a very few trades. We think that the market needs to have more products to hedge with TIIE Fondeo. You know, as almost all the credits, almost all the products for fixed income are related to TIIE, to TIIE 28 days. So in the moment that we can have more products that are related to the new TIIE Fondeo, we can see more volume in this product, no?
I believe that in the next year, we are going to see more volume in this product, because we need to build a new curve of TIIE Fondeo, no, to move all the products to the TIIE Fondeo.
Okay. Well, thank you so much.
Thank you. Our next question comes from line of Carlos Gomez with HSBC. Please proceed with your question.
Thank you for taking my questions. I have 3 brief ones. The first one, going back to the volumes, and as you say, this happens all around the world. We are seeing lower volumes, but in your case, you mentioned FX, you mentioned the exchange rate, and you mentioned the rates. What is the main factor? I mean, do you have to wait until rates go down to see the volumes? Or, is it the foreign exchange going back to exchange rate of something like 20, that would play a bigger role in your revenues? The second question refers to your cost, but not so much now. I mean, you continue to do a great job at maintaining cost growth.
My question is, in these years of inflation, have you accumulated, costs that perhaps you will have to, to incur in the coming years? I mean, are we going to see an inertia of this inflation to your cost base, when eventually you have to invest more or you, or you have to catch up with, with what, you know, perhaps you have, you have been able to, to delay at this point in time? The third is about your buyback program. We see that you have bought back another 1% of the stock this year. What do you expect to do through the end of the year and into 2024 and 2025? Thank you.
Okay, thank you, Carlos. Alfredo will take the first question.
Good morning, Carlos, this is Alfredo Guillén. Yes, the factors are the ones you're mentioning, which is interest rates, exchange rate, peso/dollar, and we add up an additional considerations, which are volatility and obviously, flight to quality of investors to the U.S., mainly. So, basically what we are seeing is that low volatility affects our trading, particularly when we see arbitrage trading being less active than in the past. And we see also, as the dollar strengthens, we see capitals moving towards the U.S., mainly in this world conditions. So, we have been seeing that during the year. We also have to remember that there's also a war in Ukraine, so everything is moving towards giving premium to safe investments.
As Oriol mentioned, 11.25% for an investor in Mexico is a very attractive rate, and we are seeing inflation going down. So real interest rates also are a major issue regarding competition of stock markets with other alternatives. So, we expect next year to see more volatile markets, interest rates being stable and less strengthening for the peso, less strength of the peso, so we can see volumes coming back. But once again, it is not a matter of tariffs. We don't believe that's the equation, and the way to go. But still, we are very open to what the market is expecting from us.
Okay, so if I understand co-
Sorry.
No, I was going to say, so if I understand correctly, what you need is more volatility. You need the currency to move more or the markets to move more, and that would really improve your volumes.
Yes, volatility, and we have discussed this with Indeval. We are in the same channel. When we see volatility going up, we see more trades, we see people, investors doing arbitrage between the U.S. market and Mexico. As you know, the SIC represents almost 50% of our trading activity. So basically, we are dealing with the same assets, the same stocks in different markets. And when volatility is there, we see more arbitrage activity between these two markets. So, more, around 90% of the trading activity in Mexico comes from the U.S., so we are very dependent on what's going on, obviously, in other markets.
Thank you so much.
Regarding cost and inflation, yes, at some point it's going to impact us. It should impact a portion of our personnel expenses. Since it's personnel expenses are more related to or are in line with the revenues, so there, the impact would be a little different. Technology costs are also impacted by the FX. So there, it's a combination of US and US pricing plus the exchange rate. Appreciation is more stable, and below that line, yes, you could have, you will eventually expect to see the impact of inflation, Carlos. And on the buyback program-
Um-
Sorry?
No, so what does that mean going forward? I mean, do you expect perhaps to have a couple of years with expenses above inflation?
No, no, I think our... Well, if we have a sharp move in interest rates, yes. But we will do what we can to keep expenses below inflation or tops with inflation. Mm-hmm. And on the buyback program, as long as we don't have a better use for the cash, we will continue looking for ways to give it back to our shareholders through a dividend or through the buyback, through the buyback program.
Okay, similar levels to what we have seen in the last two years?
Yes. Yes.
Thank you so much.
... Thank you.
Thank you.
As a reminder, if you'd like to join the question queue, please Press Star one on your telephone keypad. Our next question comes from line of Yuri Fernandez with JP Morgan. Please proceed with your question.
Hi, hi all. Thank you for the opportunity of asking questions. I have one regarding financial income. It was a little bit stronger than we expected this quarter. It seems the FX played a role, I guess, on your hedges there. So just trying to understand here, like, how to think about this line, if FX do matter, for your financial income? And also follow up on expenses. I guess it's clear your goal is to keep expenses below inflation, and not easy, as you have inflation, as you have FX, you have investments in technology. But if volumes remain lackluster as we are seeing in Mexico, any chance you could do more on expenses lines?
Any, I don't know, initiative to cut more expenses, maybe, I don't know, reduce some areas that are, I don't know, less efficient, less profitable. Could we see, you know, like, an upside on expenses if, if volumes remain light? Thank you.
Yuri, on the financial income, a combination of interest rates and what we have on our cash balance, and the effects impact. So while we continue to have higher interest rates, and we saw a recovery of the peso depreciated in September versus August, so that had an impact on our on our FX gain. Mm-hmm. We're also impacted by our by the cash we have in Chile. So we have an FX a U.S. dollar position, but we have a a long Chilean peso position. And that's what impacts the FX gain loss, and, well, then the interest rate is directly related to interest rates.
So, basically-
And-
like, this depreciation of the Chilean peso, assuming the Chilean peso remain weak for the quarter, maybe a headwind for you. We need to check how you use the cash, right? You should do more buybacks and reduce the cash position on how rates behave. It, it's many-
Sure.
Many moving parts. I guess Mexican peso is the main variable here for us, right? I would assume.
Yes, I would say of our total FX position, you could say on average, we 60% would be peso and 40% would be Chilean peso.
No, that's helpful. Thank you for the color on the balance mix.
On the cost initiatives, we're right in the middle of our budgeting process, so, depending on how we expect to see revenues going forward, we will explore more, like, cost optimization efforts. But definitely-
Okay, thank you.
We have a strong focus on cost and margin, and we're very conscious of the problem we have on revenues being flat or below last year.
No, super clear. Thank you.
Thank you.
Thank you. Our next question is a follow-up from the line of Edson Murguia with Summa Cap. Please proceed with your question.
Hi, thank you for following up. Just curious about the fractional shares, because our thoughts, it's happening in Mexico. So I was wondering if fractional shares has a negative impact on Bolsa global market shares or market share, or if broker-dealers have passed last decision-making process on how the trading volume is happening? Thank you.
Yes, Edson, at this point, this type of fraction of orders of stocks is not allowed in Mexico. We don't believe that will make a significant change in the trading activity and trading volume. Probably at some point, participants, retail participants might step in, but we don't believe that retail participants are inclined to invest just because there is a fraction of the company, no? So at this point, it's not legal, and we don't believe that the market will trade more just because of this fractioning of stocks, no.
So, just curious about how about this. But, again, in the country I'm in, I'm not gonna say the name because I'm gonna be professional. But, I may mention that, we have 6 million accounts that broker dealers manage. So don't get me wrong, but, why the volume is not increasing? Why the Mexican environment as a securities is not improving? Because since Friday last week, JP Morgan, Wells Fargo, Goldman Sachs, Bank of America, even Citigroup, improved their numbers in security and trading. So don't get me wrong, it's not about the effects.
Yes. The increase in number of accounts that we have seen in the market responds to another situation, which is the settlement of trades of retail purchases or the benefits that some brokers are giving to access the market with very low investments. So the 100 pesos, there are some accounts that could be opened with the very small amounts. So we understand that there are different strategies to give the market a service which is not particularly investing in the stock market. There are other reasons, commercial reasons, strategic reasons to have a brand being known by the participants, by the retail participants. But not because we have seen, I mean, there's no explanation or correlation between number of accounts and volume traded.
There is no direct relationship between those two variables. Also, as I was saying, different participants have different strategies, and the great growth or the big growth that we have been seeing in the past is related to other strategies that are not related to the stock trading.
Okay, thank you so much.
Good.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to management for final comments.
Yes. Thanks a lot to all of you for your, for participating in this quarterly conference call. Thanks a lot for your interesting questions. I hope that, we have answered all of them. And if there is something else, we can do for you, we can help you with, you already have our contact information. So thanks a lot, and have a great day.
Thank you. This concludes today's Conference Call. You may disconnect your lines at this time. Thank you for your participation.